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Taxing Times for Small Business

This year will be the year in which many new taxes are implemented and a number of new consultations will start. Many of these are reasonably well known as announced well in advance of the implementation dates. However, it is now common that the autumn statements also have new tax initiatives which are due for implementation by April. The last autumn statement was typical in this regard.

The following are some, but not all, new measures which affect mainly SME’s.

Auto-enrolment: Most SME’s are due to come on-stream with the pension auto enrolment in 2016. It’s a cost to the company but comes with social benefits. However, it’s admin intensive in the beginning and requires knowledgeable payroll staff. It includes part time staff under certain circumstances and includes domestic employers. One and two man companies can apply for exemptions to the PR by means of an email. Regretfully many SMEs are not aware or have chosen to ignore it, risking high penalties as a result.

Company distributions: As from 6 April the new dividend tax rules come into force. Effectively members just on the 40% marginal rate will pay around £1,400 additional tax under the new rules. However, the minimum salary/maximum dividend approach to member’s remuneration is still the most tax effective manner to pay oneself.

Apprentice levy: The Government is on the path to implementing the 0.5% apprentice levy which is scheduled to come into effect on April 2017. It is currently under consultation. The rate of 0.5% is applicable to the whole of the payroll excluding benefits in kind. It is mandatory. If your gross payroll is less than £3 Million you do not pay the levy but can claim the £15,000 apprentice levy to be spent on a recognised apprenticeship only.

SDLT now applies if owning a second property: A new extra 3% SDLT will apply as from April 2016 on the purchase of a 2nd residential home. This will have a major cash flow effect as when buying a new home with your existing home not as yet sold the additional 3% will apply. This can be reclaimed if the first home is sold within 18 months of the purchase of the new home. On a £500k property the buyer will therefore have to find an additional £15k for the extra 3% SDLT. A further issue is that property outside of the UK also count towards the fact as to whether you have two homes or not. So if owning a small holiday property in say France when buying a new home in the UK having sold your existing you still fall foul of the two home rule and you will be paying the extra 3% SDLT. Hiding the fact you have another house elsewhere is fraught with risk as it is evasion not avoidance and therefore criminal.

Digital tax accounts: HMRC is on course to implementing digital tax accounts for the 2016/2017 tax year. This has HMRC populating the digital tax return with information gleaned from banks, employers and other institutions. It is not clear how HMRC deal with taxpayers who are not digitally connected or who have income not associated with UK institutions e.g. foreign income. Neither are they clear on how errors can be corrected. Although this is done in some other tax jurisdictions, HMRC failures in past implementations are worrying. Currently agents cannot access their clients digital tax account and are warned off logging in via their client’s login. This basically leaves taxpayers floundering on their own and possibly paying too much tax or getting the data wrong and thereby incurring penalties.

Anti-abuse: Many new anti-abuse rules have come into force to collect more tax with GAAR penalties being strengthened on tax avoidance schemes especially where these are marketed.

IR35: HMRC despite the hopes of many accountants is not letting go of the failed IR35 legislation and is trying to improve upon it to make it workable.

There are a number of further initiatives some affecting allowable pension contributions by individuals, small business rate reliefs etc. which are not covered here.

Before making any decisions on tax matters do consult the experts and do not rely on what is contained in this article.